ACRE or DCP? Decision aid online

Funded in part by Cotton Incorporated, Texas A&M University’s Agricultural Food Policy Center (AFPC) has developed a decision aid for producers considering the new farm program ACRE.

The ACRE Decision Aid provides cotton producers in every county a risk-based computer program for analyzing the ACRE decision.

The 2008 farm bill provided producers the opportunity to continue counter-cyclical payments (CCPs) that are triggered only by low prices or to switch to a revenue-based payment, referred to as the Average Crop Revenue Election (ACRE) payment, triggered by low prices, low yields or both.

Producers choosing to continue receiving CCP payments would continue to receive direct payments and be eligible for loan deficiency payments and/or marketing loan gains. This choice is referred to in AFPC’s Decision Aid as selecting the DCP program.

Producers who select the ACRE payment option, referred to in the Decision Aid as ACRE, must accept a 20 percent reduction in direct payments and a 30 percent reduction in loan rates.

Producers can select the ACRE option in 2009, 2010, 2011, or 2012. But once the decision is made, the decision is fixed for the life of the farm bill.

The ACRE/DCP election is on a farm unit basis, so the decision must be made for each farm unit a producer controls.

Differences in crop mix and base acre mix from farm unit to farm unit may cause the ACRE/DCP decision to differ across farms.

ACRE payments are only made if both the state revenue in a given year falls below the state benchmark revenue for that year and the farm revenue in that year also falls below the farm benchmark revenue.

Farm and state benchmark yields are calculated using five-year Olympic average yields and a two-year moving average of national average prices.

To make the ACRE/DCP decision in 2009 producers must take into consideration their yield risks, the state’s yield risk, the correlation of their yields to the state’s yield, and the risk of national prices for 2009-12.

The ACRE Decision Aid, developed by Agricultural and Food Policy Center faculty and staff, considers all of these factors including price and yield risk and the corresponding state and farm yield correlations.

The ACRE Decision Aid is a web-based model that allows farmers to enter the data for each of their farm units and view/print the results. They can save their input data and rerun farm units under alternative price and crop mix assumptions.